Madhavan Narayanan

Vantage Point

Madhavan Narayanan is a senior journalist who has covered politics, diplomacy, business, technology and other subjects in a long career that has spanned organisations including Reuters, Business Standard and Hindustan Times. He is currently an independent columnist, editor and commentator. He is listed among the top 200 Indian influencers on Twitter. He tweets as @madversity.

As opposition parties led by the Congress stage a Bharat Bandh against a rise in the retail prices of petrol and diesel, the NDA government is fashionably blaming international developments for its plight, but anyone with a sense of how prices move up and down in cycles in modern market economics would say that the government has only to blame itself because it did not spot a lurking threat while it feasted on an opportunity.

Petroleum Minister Dharmendra Pradhan's contention that a depreciation of the Indian rupee against the US dollar and a global rise in crude oil prices have caused local prices to surge is technically correct, but it is important to ask why the government did not take any countercyclical measures or set up an early buffer to cushion ordinary customers during the phase when oil prices were soft and the rupee was strong.

Developments in economies such as Venezuela, Turkey and Argentina have indeed caused concerns about emerging markets in international trade, and India cannot escape being clubbed together for no fault of its own.

But it is time to ask Mr Pradhan some questions: why did your government rest smugly and claim efficient fiscal management when it was essentially a result of easier oil prices worldwide? Why did your government raise excise duties on petroleum products and keep them out of the goods and services tax (GST)?

Studies show that the central government is estimated to have collected a whopping Rs 10 lakh crore (an amount tantalising close to the level of bad loans piled up in the Indian banking system) from levies on petrol and diesel between 2014-15 and 2018-19, the five-year tenure of the Modi government. Taking advantage of soft oil prices the government quietly raised duties on petroleum products during its reign.

Excise duty on unbranded petrol rose from Rs 9.24 per litre in late 2014 to Rs 19.48 this year, helping the government keep the fiscal deficit in control, and boast about it to foreign investors and international financial agencies. The Centre also currently levies an excise duty on Rs 15.33 per litre on diesel, which has witnessed a steady increase but for a small cut in the intervening period. Keeping a central government leash on oil-based fuels while keeping it out of the GST was evidently an opportunity that has now become a political threat.

Perhaps no Indian government in recent times has enjoyed such a sweet spot in global oil prices as Prime Minister Narendra Modi's. Thanks to that, both inflation and the fiscal deficit have been in control. Consumer price inflation has been under 6 percent for most of the NDA government's reign on account of global factors. As a result, interest rates have also been lower, helping the average middle class citizen's home loan instalments stay under control.

Those were 'achhe din' (good days) for both the government and the citizens. Not any more, it seems. India's external account, reflected in the current account deficit, has been steadily deteriorating. With oil prices on the rise again, the current account deficit is expected to rise to 2.8% of the GDP in the current year from 1.9% in 2017/18.

Oil prices plunged from $100 levels when the NDA government took charge in 2014 to merely one third of that level one year later. The NDA government could have taken some extra efforts to anticipate a turn in the cycle of oil prices and taken precautionary measures. Alas, it did not.

As the Hindi proverb goes: "Bahti Ganga me sab haath dho lete hain" (Everybody washes his hands when the Ganga flows -- equivalent to making hay while the sun shines or jumping on the bandwagon).

The sun was shining all these years and clouds are out again. The government must now take responsibility for both or maybe rue the fact that you cannot be pleasing international financial agencies and local voters at the same time. In an election year, the local mood can bite a ruling party more.

(Madhavan Narayanan is a senior journalist who has covered politics, diplomacy, business, technology and other subjects in a long career that has spanned organisations including Reuters, Business Standard and Hindustan Times. He is currently an independent columnist, editor and commentator. He is listed among the top 200 Indian influencers on Twitter. He tweets as @madversity)

(Disclaimer: The opinions expressed above are the personal views of the author and do not reflect the views of ZMCL.)